# 50 Accounting Terms Every First-Time Business Owner Should Know

Accounting conversations become easier when you can identify what a term describes: a resource, an obligation, a period's performance or the process used to prepare the numbers. The following 50 terms provide a working vocabulary for a first-time Indian business owner. These are introductory explanations, so a contract or applicable reporting standard may require a more specific treatment.

Use the list while reading actual reports. Memorising a definition is less useful than finding the corresponding balance in your own business and understanding the evidence behind it.

## The business and its financial position

1. **Entity:** The business whose accounts are being prepared, considered separately from the owner's personal spending.
2. **Transaction:** A financial activity recorded in the books, such as buying goods on credit.
3. **Asset:** A resource controlled by the business that is expected to provide future economic benefits.
4. **Liability:** A present obligation from past events that the business expects to settle using resources.
5. **Equity:** The residual interest in assets after liabilities are deducted; it is not simply available cash.
6. **Capital contribution:** Resources the owner puts into the business as ownership funding rather than sales.
7. **Drawings:** Money or other assets a proprietor withdraws for personal purposes, reducing the owner's interest.
8. **Working capital:** Commonly, current assets less current liabilities; examine the components as well as the total.
9. **Current asset:** An asset classified by the relevant operating-cycle, trading, realisation or cash criteria under the applicable framework.
10. **Non-current asset:** An asset outside the current classification, often equipment or another longer-term resource.

## Sales, spending and results

11. **Revenue:** Income from ordinary business activities, recognised according to the relevant requirements rather than merely when cash arrives.
12. **Expense:** A cost or reduction in economic benefits recognised in measuring the period's result.
13. **Cost of goods sold:** The cost attributed to the inventory sold during the reporting period.
14. **Gross profit:** Revenue less the corresponding cost of goods sold or services, using the report's stated classification.
15. **Net profit:** The residual result after the expenses included in the report have been deducted.
16. **Gross margin:** Gross profit expressed as a percentage of revenue; specify the revenue and cost basis.
17. **Markup:** The increase over cost used to set a selling price; its percentage denominator differs from margin.
18. **Discount:** A reduction in price or amount payable, whose treatment depends on the arrangement.
19. **Sales return:** Goods returned by a customer, requiring the sale and related inventory effects to be considered.
20. **Credit note:** A document reducing an earlier invoiced amount or recognising another agreed adjustment.

## Money owed and money received

21. **Trade receivable:** An amount due from a customer for goods sold or services supplied in ordinary business.
22. **Trade payable:** An amount owed to a supplier for ordinary purchases of goods or services.
23. **Advance:** Payment before the related supply or settlement; identify whether the business paid or received it.
24. **Deposit:** Money held under an agreement, often refundable subject to specified conditions.
25. **Cash flow:** Movement of cash and cash equivalents during a period, distinct from accounting profit.
26. **Liquidity:** The business's ability to meet near-term cash commitments using accessible resources.
27. **Loan principal:** The borrowed amount outstanding, excluding separately recognised interest and charges.
28. **Interest:** The financing cost or return associated with lending or borrowing money.
29. **Ageing report:** A schedule grouping unpaid balances by age or overdue period using a stated date basis.
30. **Bad debt:** A receivable assessed as uncollectible and written off under the relevant accounting treatment.

## Timing and measurement

31. **Accrual:** Recognition of earned income or incurred expense before the related cash settlement when appropriate.
32. **Prepayment:** An amount paid for benefits relating to a future period, released as those benefits are consumed.
33. **Depreciation:** Systematic allocation of a tangible asset's depreciable amount over its useful life.
34. **Amortisation:** Systematic allocation commonly associated with a finite-life intangible asset's depreciable amount.
35. **Impairment:** Reduction where an asset's carrying amount exceeds the recoverable amount determined under the applicable requirements.
36. **Carrying amount:** The amount at which an asset or liability appears in the books after relevant adjustments.
37. **Historical cost:** A measurement basis rooted in the original transaction amount, subject to subsequent accounting adjustments.
38. **Fair value:** A specified valuation basis; its precise definition and permitted use depend on the applicable standard.
39. **Provision:** A liability involving substantial estimation, recognised only when the relevant conditions are satisfied.
40. **Materiality:** The significance of information to users' decisions, assessed by amount, nature and circumstances.

## Records and reports

41. **Source document:** Evidence supporting an entry, such as an invoice, agreement or approved calculation.
42. **Journal:** The chronological record of entries, including the accounts and amounts affected.
43. **Ledger:** A record collecting movements and balances for an individual account.
44. **Chart of accounts:** The organised list of account categories used to record and report transactions.
45. **Debit:** The left side of an account; whether it increases a balance depends on account type.
46. **Credit:** The right side of an account; it does not automatically mean income or cash received.
47. **Trial balance:** A list of ledger balances used to check debit and credit equality.
48. **Reconciliation:** A comparison of records that explains differences and identifies corrections required.
49. **Balance sheet:** A statement of financial position at a particular date.
50. **Profit and loss statement:** A report of recognised income and expenses over a stated period.

## Put the terms together

For an illustrative retailer, goods costing ₹800 sell for ₹1,000 on credit. Gross profit is ₹200, gross margin is 20%, and markup on cost is 25%. A trade receivable arises before collection. Receiving ₹1,000 later increases cash and clears that receivable; it does not create a second sale.

When a report contains unfamiliar language, ask for the account, period and calculation behind it. Keep company-specific definitions beside this introductory glossary. Shared vocabulary becomes useful when the sales team, bookkeeper and owner use the same words for the same financial events.

## Sources and references

- [ICAI Foundation: Meaning and Scope of Accounting](https://resource.cdn.icai.org/74599bos60479-fnd-cp1-u1.pdf)
- [ICAI Foundation: Accounting Concepts, Principles and Conventions](https://resource.cdn.icai.org/74600bos60479-fnd-cp1-u2.pdf)
- [ICAI: Framework for the Preparation and Presentation of Financial Statements](https://indasaccess.icai.org/Volume-III/AS/asb.html?a=101)